After acquisition tear, Lithia cuts stores

Lithia Motors Inc., which has been on a major acquisition tear for the past four years, is now purging a dozen underperforming dealerships.

The Medford, Ore., dealership group, which has stores across the country, has jettisoned three dealerships this year and plans to sell at least eight more before the close of 2018, company executives said last month. The divested locations are Mazda-Volvo and Mitsubishi stores in Fresno, Calif., plus an Audi dealership in Monroeville, Pa.

"Over the coming months, you'll see that we're going to be cleaning up the network a little bit," CEO Bryan DeBoer told analysts July 25 after announcing second-quarter earnings.

The targeted stores are typically smaller ones that sell fewer than 600 new vehicles a year, DeBoer said. Lithia attempted to turn the dealerships around.

"In many of the groups that we purchased, there was assets that we believed had a chance to become successful, and we tried those," DeBoer said. "So now we're looking at network optimization, and we have a half a dozen to a dozen stores that are really dragging on earnings."

The divestitures will still benefit the company, DeBoer noted, as the stores will be sold at a profit to Lithia. Eight stores are already under contract to buyers.

"We also know that 86 percent of the time, our investment strategy of buying strong assets that just aren't quite performing right is the solution to good growth" DeBoer said.

Lithia has expanded quickly since it bought DCH Auto Group in 2014. It had 101 dealerships then and now operates 188.

Last year, the company purchased 18 stores. This year so far, Lithia has acquired Honda and Acura stores in Buffalo, N.Y.; Day Auto Group in Pittsburgh; and six locations from the Prestige Family of Fine Cars in Bergen County, N.J. Lithia also added two Ford stores in Idaho Falls, Idaho, and Eatontown, N.J., and opened a Chrysler-Jeep-Dodge-Ram store in Corpus Christi, Texas.

Lithia is still hunting for bargains.

"We're still actively pursuing acquisitions, and we're a company that's powered off of our people," DeBoer told Automotive News. "As such, that's how we drive our ability to buy what we call strong assets that really haven't performed to their potential. That's the same story that we plan on running into the future."

Lithia is ranked No. 4 on Automotive News' list of the top 150 dealership groups based in the U.S., with retail sales of 167,146 new vehicles in 2017.